(1.) THE Tribunal, Bombay, has required under S. 66(2) of the Indian IT Act, 1922, stated the case and
referred to this Court for its opinion the following question of law :
"Whether, on the true construction of r. 23 of the rules framed under the Indian IT Act, 1922, and the Government Notification No. S.R.O. 3419 dt. 22nd Nov., 1955, the rebate allowed under that notification can be taken into account in fixing the average price of sugarcane under the said rule ?"
(2.) THE material facts, as appearing from the statement of the case, are these : The assessee is a public limited company carrying on the business of manufacture and sale of sugar which is
produced in its factory at Sehore. It has its own farm for growing sugarcane but the produce is not
sufficient to meet its requirements. Therefore, it has to purchase sugarcane from other farms in the
neighbourhood. The assessment years are 1956 -57 and 1957 -58, the corresponding account
periods being 27th Oct., 1954, to 14th Nov., 1955, and 15th Nov., 1955, to 2nd Nov., 1956. By a
notification No. S.R.O. 3419, dt. 22nd Nov., 1955, the Government of India, in exercise of the
powers conferred on them under cl. 3 of the Sugarcane (Control) Order, 1955, fixed Rs. 1 -7 -0 per
maund as the minimum price to be paid by the producer of sugar for sugarcane to be delivered at
the factory gate. The notification further provided for a rebate of 3 pies per maund per mile subject
to a maximum of annas 0 -3 -0 per maund for sugarcane taken by the producer by road on his own
transport from the purchasing centre. This notification governed both the years 1956 -57 and 1957 -
58. For determination of income chargeable to tax in these years, the assessee claimed to deduct the market value of sugarcane grown by it in its own farms at the rates given below :
. 1956 -57 1957 -58 . Rs. Rs. (i) Rate fixed by the Government 1 -7 -0 per md 1 -7 -0 per md. (ii) Average transportation charges 0 -3 -4 -61 per md. 0 -2 -1 -24 per md. (iii) Difference of 15% on account of superior quality 0 -3 -10 -80 per md. 0 -3 -9 per md. . 1 -14 -3 -41 per md. 1 -12 -10 -24 per md.
The ITO disallowed the transportation charges and the difference claimed on account of quality. Since the price of sugarcane as fixed by the relevant Government notification was Rs. 1 -7 -0 per
maund at the factory gate, with a rebate for purchase at the outlying centres to the extent of
maximum of 3 annas per maund, the ITO took the view that the market value had to be computed
at the rate fixed by the aforesaid assessee for purchases made by it from other growers at the
various outlying centres. According to the ITO, this came to Rs. 1 -4 -11 -15 per maund for the year
1956 -57 and Rs. 1.312 per maund for the year 1957 -58. The AAC, however, held that the assessee was entitled to get the market value determined on the basis of Rs. 1 -7 -0 per maund as the
market value of sugarcane, the minimum fixed by the Government notification. Being aggrieved,
the Department took the matter to the Tribunal, which set aside the orders passed by the AAC and
affirmed those of the ITO. As already indicated, this reference was then made at the instance of
the assessee who had, upon refusal by the Tribunal, moved this Court for that purpose under S. 66
(2) of the Act.
(3.) HAVING heard the counsel we have formed the opinion that the conclusion reached by the AAC is correct. As the question referred to us itself shows, it has to be determined upon a construction of
r. 23 of the Rules framed under the Indian IT Act, 1922, and the Government notification No.
S.R.O. 3419, dt. 22nd Nov., 1955. The relevant provisions of r. 23 are :
"(1) In the case of income which is partially agricultural income as defined in S. 2 and partially income chargeable to income -tax under the head 'business', in determining that part which is chargeable to income -tax, the market value of any agricultural produce which has been raised by the assessee or received by him as rent -in -kind and which has been utilised as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent -in - kind. (2) For the purposes of sub -r. (1), 'market value' shall be deemed to be : - (a) Where agricultural produce is originally sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent -in -kind to render it fit to be taken to market, the value calculated according to the average price at which it has been so sold during the year previous to that in which the assessment is made." The notification just mentioned reads : "In exercise of the powers conferred by cl. 3 of the Sugarcane (Control) Order, 1955, the Central Government hereby fixes Rs. 1 -7 -0 per maund as the minimum price to be paid by a producer of sugar by vacuum pan process or his agent for sugarcane delivered at the gate of his factory and Rs. 1 -5 -0 per maund for sugarcane delivered at railway centre, during 1955 -56 crushing season : Provided that - (1) a rebate of 3 pies per maund per mile, subject to a maximum of 3 annas per maund may be deducted out of the minimum sugarcane price of Rs. 1 -7 -0 per maund, by a producer of sugar by vacuum pan process in case of sugarcane transported by such producer by road in his own transport from purchasing centre to the factory gate....." ;